Energy costs may hinder tile industry growth- Report
24 April 2012 07:20 am
The Sri Lankan ceramic tile industry could see a surge in both its domestic and export markets provided that positive signs as to a global economic recovery and booming local construction industry are not offset by the industry’s escalating energy and raw material costs, according to a report on the tile sector from Asia Wealth Management Co (Pvt) Ltd.
Noting that tile consumption is highly correlated with per capita income levels, the report stated that the domestic market holds significant potential for the industry.
“When compared to certain countries, Sri Lankan tile consumption is deeply low. This is due to the fact that tile is a luxury product and does not have priority in a typical dwelling construction. However, low per capita tile consumption compared to higher per capita GDP growth in Sri Lanka proves that there is ample room for the tile sector to grow,” the report stated.
Nevertheless, it noted that the industry remains highly exposed to volatility in energy costs; particularly LP Gas and kerosene, which currently account for between 35% and 40% of average production costs.
Despite its relative abundance, restrictive mining regulations on clay- the industry’s primary raw material- may also play a part in driving up costs for the tile sector, according to the report.
Such restrictions, in combination with an increase in the prevalence of illegal clay mining operations may force industry players to commence importing clay from China or India, ultimately exposing ceramic tile manufacturers to further risk through exchange rate volatility in an industry which at present sources 95% of its raw materials locally.
The report added that competition from cheaper foreign alternatives as a result of the government’s decision to reduce the Cess on importation of certain categories of building stones, including tiles, from 30% down to 20% may cause severe price competition for the local industry, potentially leading to the domination of local markets by cheaper imports from China.